February 25, 1936 (18th Parliament, 1st Session)


William Lyon Mackenzie King (Prime Minister; Secretary of State for External Affairs; President of the Privy Council)



Yes, certainly, exchange of most favoured nation treatment is mutual. Since the agreement was signed the United States has entered into trade treaties with Honduras, The Netherlands, and Switzerland, I believe that there are some eleven other countries with which the United States are now negotiating agreements, and in the event of satisfactory agreements being arrived at, Canada will of course benefit as I have indicated.
May I point out another feature which is all important in connection with this agreement? If no agreement were entered into, there would be no guarantee that Canada would continue to enjoy the opportunities which she now has in the American market under existing rates. The United States came to have last year, for the first time, a two-column tariff. Formerly it was a general tariff the same as against all nations but now there is another tariff, which gives more
favourable rates, and of that tariff Canada has had the benefit. That benefit was extended last year when my right hon. friend was in office, because negotiations were still continuing, but if this agreement is not approved Canada will cease to have the benefit of those more favourable tariff rates and will again come under the general tariff. Moreover there is to-day no guarantee that on goods which are at present admissible into the United States from Canada free, duties may not be imposed. One of the main features of this agreement is that it assures for the next three years a continuance of the favourable opportunities which we already have in the United States market and the prevention thereby of new impositions against this country.
As I have indicated, prior to May 1,
1935, the United States had a single column tariff, but when the trade agreement with Belgium came into operation there was inaugurated a new commercial policy on the part of the United States, namely the beginning of a two column tariff. Eventually all countries will be divided into two classes so far as United States imports are concerned, those with which the United States has trade agreements incorporating the most favoured nation clause, which will receive the lower rate, and all other countries failing to conclude an agreement with the United States which will pay the higher rates.
In embarking upon this new policy the United States government announced that the more favourable schedule of duties would be extended temporarily to all countries. This was done in order to promote friendly relations with other countries and to encourage them to conclude agreements with the United States. Meanwhile, negotiations towards such an end had been opened with a number of countries and the intention of the United States government to undertake such negotiations with others had been announced.
It was made known that Canadian exports to the United States would enjoy the benefits of the most favoured nation treatment until October 1, 1935, since negotiations with Canada had already begun. Later, when no agreement had been completed by that date, the concession was extended to January 1,
1936. Failing an agreement by the 1st January, 1936, there was every probability that Canada would have been removed from the favoured list and would thereby have ceased to enjoy the lower rates of duty. Already Germany had denounced the most favoured nation clause of her agreement with the United States and had suffered this fate.

Canada-U-S. Trade Agreement
At the present time the difference between the two schedules of rates, the most favoured nation and the general, in the United States tariff is not great; but it is the expressed intention of the United States government to endeavour to conclude bilateral treaties with all countries with whom she has any significant amount of trade. If such a course is followed, the disparity between the two tariff schedules will increase in a cumulative fashion. Therefore, if Canada had not concluded an agreement with the United States, while the latter continued such a policy, Canadians would have had to contend with obstacles in the United States tariff that would have become increasingly onerous as time went on.
It should, at the same time, be remembered that the policy of this country toward the United States left Canada, on a number of scores, open to attack by the people in United States adversely affected thereby. We had come to think of the general tariff as one maintained practically against goods of the United States, for the latter was the only country with which Canada had an important exchange of trade, against which the general schedule was levied. The general rate applied also to goods from Russia, but trade with that country had been largely prohibited by embargoes in any case. Thus, there was considerable weight in the United States contention that we were discriminating against them and the complaints being made at Washington were adding greatly to the pressure being put upon the United States government to retaliate against this country.
The privilege enjoyed by citizens of the United States returning to that country to bring with them goods for their own use to the value of $100, duty free, has always met with opposition from those who feel themselves adversely affected by this provision. In recent years this opposition has grown due in part to the general feeling, mentioned above, that Canada has discriminated in one way or another against the United States, but more especially because this country has consistently refused to grant any similar privilege to Canadians returning from the United States. An increasing demand was being made that this privilege no longer be given to citizens of the United States returning from Canada, and a strong lobby in Washington were pressing for action to this effect. If Canada had persisted in her refusal to reciprocate on this point it is most probable that we should have lost a trade worth several million dollars yearly.

In regard to direct shipment may I say that prior to the entry into effect of the trade agreement, the Canadian tariff provided that imports enjoying the lower rates of the intermediate tariff must not pass in transit through countries to which the intermediate rates were not extended. Similarly, goods entering Canada under British preferential rates must not pass through a non-British country, if they were to secure full benefit of British preferential treatment. The United States had for some time asked for the complete abolition of these direct shipment provisions, which they contended were grossly discriminatory against United States ports and transportation facilities and against which they had threatened retaliatory action for some years. Representative White had twice introduced a bill of this nature and on January 7, 1935, representative McCormack introduced a similar measure. The good offices of the United States Department of State had succeeded in delaying the enactment of such legislation by holding out the promise that the question would be dealt with whenever a commercial agreement with Canada was concluded.
Canadian transportation officials have for some years made representations to the government of this country pointing out the serious nature of this threat and appealing for the abrogation of the direct shipment regulations in the case of United States so far as the intermediate tariff was concerned. The president of the Canadian Pacific Railway Company has pointed out the importance of the carrying trade which this country does for the United States. According to his figures goods from foreign countries shipped in transit through Canada to the United States were valued at over $65,000,000 during the fiscal year of 1931; while all Canadian imports, both empire and non-empire, shipped in transit via the United States amounted to less than $9,000,000.
It should be noted that a simple exchange of most favoured nation treatment would have automatically extended to the United States the transshipment privileges which they derived from the trade agreement. The provisions for direct shipment in connection with British preferential rates are not affected in any way.
Apart from the handicaps previously mentioned which Canada would have experienced in United States markets had she failed to secure most favoured nation treatment from that country, there was the further danger of a number of items of which Canada is the chief supplier being transferred from the free

Canada-U.S. Trade Agreement
list in the United States tariff. The most important commodity falling under this head is that of newsprint.
While newsprint still remained on the free list it was by no means certain that it would continue to do so. It has been proven that newsprint can be produced on a commercial basis from the type of pine which the southern states (Jan supply in large quantities. For some time these interested states have demanded a high protective rate on this commodity, in order to stimulate domestic production. Their demand was assuming such proportions that the government at Washington was finding it increasingly difficult not
to take action. The serious nature of this threat to the Canadian export trade will be seen once the figures of the trade are looked into.
I have here a statement showing an analysis of concessions granted to Canada, based on United States imports from Canada in the year 1929. Unless the house insists I shall not read it, but with the permission of hon. members I should like to place it on Hansard.

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